A government-appointed panel of experts is warning that the new ID cards system will be open to fraud by the people running it.

In a potentially damaging revelation, which undermines claims that the scheme will enhance national security, the group has concluded that it will be prone to corruption.

A new report by the Independent Scheme Assurance Panel (Isap), set up to advise the government on the implementation of ID cards, states: 'Based on the likelihood that the scheme will aggregate a lot of valuable data, there is the risk that its trusted administrators will make improper use of this data.' It adds: 'The scheme will be subject to data errors and errors in decisions made.'

The acknowledgements come as the government has admitted it is to contract out the taking of fingerprints and photographs of ID card applicants to the private sector to save money.

The news has alarmed opponents of the scheme, who say this will increase the risk that the data of individuals will be illegally shared with third parties. 'By cutting costs and cutting corners, the Home Office has fundamentally undermined the integrity of the scheme,' said Phil Booth, spokesman for the campaign group, No2ID.

The Isap report goes on to warn that the scheme may not be embraced by government departments, suggesting the cards are not being well received in some Whitehall departments.

The panel also warns the initiative is struggling to fulfil its remit. It states that the scheme lacks a 'robust and transparent operational data governance regime and clear data architecture', suggesting there is confusion over its roll-out. And it goes on to say: 'Though the tender process is supposedly well advanced, requirements for information, communication and technology systems, processes and operations have still to be adequately specified and the rationale for key design decisions is unclear.'

The report is potentially damaging to the government as it battles to convince the public of the necessity for the cards. The Conservatives have pledged to scrap the scheme and spend money on building prisons instead.

A spokesman for the Home Office said the decision to outsource the biometric part of the ID cards contract to the private sector was taken on cost grounds. 'Using the private sector to provide biometric enrolment will give applicants a choice of competing services which should maximise convenience and drive down price,' the spokesman said.

And he said there was no risk to security. 'The private sector will provide the Immigration and Passport Service with the photograph and fingerprints of applicants but will have no decision-making powers over who is eligible for a passport or identity card,' the spokesman said. 'This will be made by security-cleared civil servants.'

But No2ID said the sysyem was open to corruption. 'Ministers pride themselves on biometrics and security,' Booth said. 'But now this is going out to all and sundry.'